TREASURIES-Prices drop as U.S. data hint at recovery

Mon May 13, 2013 9:21am EDT

Related Topics

* U.S. retail sales in April rise unexpectedly
    * Yields on 30-year bonds touch highest in more than 6 weeks
    * Speculation continues that Fed could be weighing exit

    By Luciana Lopez
    NEW YORK, May 13 (Reuters) - Prices for U.S. Treasuries slid
early on Monday as data showed U.S. shoppers unexpectedly ramped
up their buying last month, albeit slightly, pointing to
underlying strength in the world's biggest economy.
    The Commerce Department said on Monday retail sales edged up
0.1 percent last month, instead of dropping 0.3 percent as
expected by economists in a Reuters poll. 
    "The overall tone of this report was quite encouraging as it
suggests that U.S. consumers are continuing to successfully
navigate against the steady fiscal headwinds," said Millan L.
Mulraine, director of U.S. research and strategy at TD
Securities in New York.
    "However, we believe that consumers will become more
challenged to sustain this level of spending unless we see a
more meaningful improvement in labor market activity."
    The benchmark 10-year note dropped 12/32 in
price on Monday to yield 1.940 percent compared with 1.9 percent
late on Friday.
    The 30-year bond slipped 27/32 in price to yield
3.140 percent compared with 3.096 percent late on Friday.
    "It's amazing how sentiment has just changed from 'we're
going to a lot lower on yields' to right back to approaching
contacts not too far from the highs of the year in yields,"
Justin Lederer, a Treasury strategist at Cantor Fitzgerald in
New York.
 
    A continued climb in the dollar against the yen also helped
erode Treasury prices overnight. The yen slumped further past
100 to the dollar after Group of Seven officials avoided
censuring Japan over the country's massive monetary easing
effort. 
    That stimulus program has led to speculation that Japanese
investors will seek yields elsewhere, seeking out riskier,
higher-yielding assets for their money.
    In contrast, U.S. investors are pondering the possibility
that the Federal Reserve could pare back or stop its
asset-buying program as soon as this year. 
    While the unemployment rate has slipped lower recently, at
7.5 percent the rate still remains a full point off the 6.5
percent Fed policymakers want to see.
    Recent economic data have proven mixed, as well, with some
figures supporting a labor market recovery and others painting a
more ambiguous picture.
    While a Wall Street Journal article over the weekend fueled
speculation the Fed could be weighing exit strategies, some
analysts were skeptical.
    "For the Fed to want to slow its bond purchases, it would
need to see three back-to-back 200,000-plus gains in non farm
payrolls," wrote Andrew Wilkinson, chief economic strategist at
Miller Tabak & Co. LLC in New York, in a note to clients on
Monday.
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